LIVE MARKETS-Bunds pulled in opposite directions

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BUNDS PULLED IN OPPOSITE DIRECTIONS

Euro zone bonds have slid in recent weeks, as markets brace for more borrowing to fund increased defence spending in light of the new reality in Washington that has made European leaders sit up and take note.

That's pushed yields higher, and Mark Dowding, fixed income CIO at RBC BlueBay Asset Management, believes the expected higher government debt levels will be a factor holding up bond yields in quarters to come.

But they're also being pulled in the other direction too as the economy stagnates.

"It is hard to become much more constructive on the European growth outlook and we continue to see the ECB cutting rates to 2% in the coming six months," Dowding says.

"Further easing could still be warranted should looming US tariffs further depress the growth outlook."

Indeed, today's PMIs painted a gloomy picture of tepid growth in the euro area with no signs yet of an economic recovery.

"From this standpoint, we see conflicting drivers pushing yields in opposing directions, and we don't have a particularly strong view on European yields at this time," Dowding adds.

"That said, we would see 10-year Bunds as starting to look cheap around 2.7%."

Germany's 10-year yield DE10YT=RR last stood at 2.49%.

(Samuel Indyk)

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